By Joshua Manning • 22 April 2022 • 13:06
Following the news of major Chinese cities currently finding themselves in lockdown, it has now been announced that China’s yuan is set to face its worse week in four years, with many questioning whether or not the country is allowing for this to occur as a way to counter the huge economic crisis it is currently facing.
On Friday 15, April, The People’s Bank of China stated that it was cutting the reserve requirement ratio (RRR) for commercial banks by 0.25% percentage points which will benefit rural banks as well as small commercial banks with the release of 530 billion yuan ($83.2 billion) into the bank system on April, 25.
“In light of changes in the current situation, we will encourage large banks with higher provisions to lower provision ratios in an orderly manner and will use monetary policy tools, including RRR cuts, in a timely way,” the State Council announced after a meeting chaired by Premier Li Keqiang.
On Friday 22, April the Yuan fell 1.8% against the dollar this week, the biggest weekly drop in the currency’s value seen since June 2018. “The macro outlook for China and the renminbi have certainly shifted significantly over the last several weeks on account of the COVID-driven lockdowns and disruptions in large parts of the country, especially Shanghai,” stated Alvin Tan, Asia FX strategist at Royal Bank of Canada.
But some stakeholders expressed happiness at the yuan weakening, as it may lead to less pressure on Chinese exporters who are suffering due to the lockdowns. “Export growth is likely to slow, so allowing some weakness in the yuan at this point is fine,” stated a trader at a Chinese bank.
Multiple traders claim that they have not seen Chinese banks appear on the market to salvage the yuan’s losses which they said implied the Chinese bank’s approval of the monetary depreciation.
The yuan’s trade-weighted basket index, which is used to measure the Chinese currency’s value in comparison to the currency of its trading partners, landed at 104.25 on Friday which is a two-month low for the country. China wishes to keep this index within a certain range so as to not become disadvantaged in comparison to foreign traders.
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Originally from the UK, Joshua is based on the Costa Blanca and is a web reporter for the Euro Weekly News covering international and Spanish national news. Got a news story you want to share? Then get in touch at [email protected]
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